Presentation: State of Bioenergy Development in SADC andIncubator Support Opportunities

....................................................

35

10.

Presentation: UNIDO Bioenergy Initiatives in Southern Africa

................

37

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

3|46

11.

Presentation: SE4ALL and Bioenergy Investments

...............................

38

12.

Discussion Panel: Agency Support

..................................................

39

13.

Developing the Fund: Roadmap for Establishment.............................

40

14.

Closing by Prof Elmissiry

................................................................

43

15.

Analysis of the Projects Competition

...............................................

43

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

4|46

I.

EXECUTIVE SUMMARY

“The deployment of robust and proactive Bioenergy technologies across Africa isnow fundamental to the continents ability to delivery sustainable economic energy,communications and enterprise in the years to come”.

This was the primary message of the distinguished Agency Leaders, Experts andParticipants at the Bioenergy Investment Symposium in Johannesburg on the 30thand 31st July 2012. The Symposium was facilitated by NEPAD, the foremost technicalagency of the African Union.

Dr Ibrahim Mayaki, CEO of

NEPAD opened the Symposium calling for a major up-shiftin the pace of Bioenergy delivery across Africa and the head of the Energy Divisionof NEPAD, Professor Mosad Elmissiry echoed the message of Dr Mayaki and called onthe Symposium delegates to endorse a programme of enterprise support andinvestment to maximise the resources of Green Africa to anchor its place as one ofthe most sustainable economies in the world.

Private and Public sector investors were represented at the Symposium and theproceedings transcribed in this report, indicates a strong desire to facilitateinvestment in the Bioenergy Sector, particularly if project risks can be bettermitigated through enterprise incubation. This report recalls in some detail thepresentations, debate and desires of the audience of experts from the Bioenergy,Renewable and Investment community as well as invited bio-sector projects whowere afforded the opportunity to seek funding for new projects across SouthernAfrica. All delegates welcomed the opportunity to measure the real world needs ofthe 5 projects and responded in weeks following the Symposium with actions thathave resulted in 3 projects receiving crucial advice, funding and or commercialorders which validates the need for a process that could formalise the incubation ofprojects and respond to their technical and business needs more effectively.

The Symposium programme was driven by a position paper authored by theSymposium Chairman in which he advocates the implementation of a new structurethat would allow Bioenergy developers to accelerate deployment with faster accessto expertise and risk capital earlier in the innovation cycle. The Symposium paperalso set out potential new funding methods to tackle the challenge of attractingprivate

and public investment to fill the forward risk gap in the sector.

NEPAD cited Bioenergy is the largest portion of Global Renewables, accounting for10% of total energy sources at present. In 2010, the global installed capacity ofbiomass power generating plants was between 54 and 62 GW. Africa’s share of this isonly 3%, a position that must change if Africa is to avoid consistent energy insecurityin the years ahead.

In 2008 a World Bank report forecast that over600,000,000

people in Africa would still

not have access to electricity by 2050, however other reports suggest that Africa willbe the 2nd largest provider of Biomass resources to the world within the sametimeline. The stark reality is that without power, enterprise cannot be developed andso the cycle of subsistence will continue and deny people access to a sustainableway of life.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

5|46

It is estimated that demand for biofuels will outstrip supply by 2020 and ethanoldemand will exceed supply by 2015 if the IEA forecast price index for carbon fuelscontinues to increase at the current rate. Globally it is projected that biofuels willhave a 27% share of the total energy market by 2050. Africa could have the largestpotential to produce Bioenergy, provided advanced technologies together with theright policies are implemented to harmonise with market need.

Africa has the opportunity to formulate Bioenergy policies and capitalise on its lateentry to the market thus avoiding the mistakes that developed Nations created byover engineering policies which have driven private sector investors overseas orretarded the pace of growth. The objective of the Symposium was to define andagree the parameters and methodologies to create an incubator process and fundwhich can leverage the assets of Africa for the benefit of African Nations.

The key driver globally is towards sustainability. It makes economic sense to findalternative fuels to fossil fuels and to adopt them in a way that is sustainable locallyand effective for the people that need to use them. Large producers are looking forlow cost inputs. They want a fuel they can buy cheaply to lower their margins.Capital will rush into the space that is available if there is a mandatory requirementto change the habits of industry. Industry has been bashedby carbon creditinitiatives imposed by governments in the developed world, and policies andchanges in policies are now restricting the ability for the renewable and Bioenergysectors to gain traction. As a result there is an agreed opportunity for Africa

Symposium Participants agreed that Africa has a great opportunity to move into theBioenergy space because it doesn’t havethe complexity of multi strata multi-statepolicies that have reached a level that distract from projects. Sub Saharan nationscan exploit these opportunities for developing realistic policies and regulation ratherthan putting them in front of potential projects before they have the opportunity toget off the ground.

This Bioenergy Investment Symposium, was recognised as a new direction forBioenergy in Africa and the widespread consensus by Delegates to support thecreation and funding of the Bioenergy Incubator Business Units under the stewardshipof NEPAD could make a measurable difference to the appetite for early day riskinvestment which is the building blocks for commercial scale transition from aCarbon to a Bioenergy fuelled economy.

The Symposium closed with a broad consensus to continue the initiatives presentedby developing a specific framework for the establishment of a “Business Unit” withinNEPAD to facilitate the incubation of Bioenergy Projects and provide access toInternational best practice in Business and Technology. There was also demonstrablesupport to launch a Bioenergy Incubation Fund to bridge the risk capital gap in theBioenergy market for early adopters in Africa.

Symposium participants were treated to an exceptional standard of presentationsand information from the Bioscience, Bioenergy and Financial sectors. A fact thatwas reflected by key business media channels who reported on the event and thesuccess of its format and outputs.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

6|46

II.

DAY ONE

1.

Host Welcomed

Dr Ibrahim Mayaki (Chief Executive, NEPAD)

Dr Mayaki emphasised the importance of the Bioenergy Investment Symposium andthe role of NEPAD as the Development Agency for the African Union (AU). NEPAD’sdelivery process is divided into 3 elements:



Continental strategies;



Regional coherence;



National policies (incorporating government plans and implementation policies).

The capacity to design proper strategies is based on the mechanisms of partnerships.Africa does not have a continental strategy inthe domain of energy and needsconcrete content in terms of options and bankable projects and implementationpolicies. The Symposium will serve to link the priorities of bioenergy development,identify bankable projects, design and implement policy.

Presented by Professor Mosad M. Elmissiry, Head of Energy Programmes for NEPAD

Africa needs a radical change towards energy management. Bioenergy is thelargest portion of renewables and accounts for about 10% of total energy sources atpresent. In 2010, the global installed capacity of biomass power generating plantswas between 54 and 62 GW. Africa’s share of this is about 3%.

Internationally, the demand for biofuels will outstrip supply by 2020 and ethanoldemand will exceed supply by 2015. Globally it is projected that biofuels will have a27% share of the total energy market by 2050. And by 2050, Africa could have thelargest potential to produce bioenergy, provided advanced technologies togetherwith the right policies are implemented.

Currently Africa does not have sustainable use of biofuels. Africa makes use oftraditional biomass e.g. firewood and charcoal which is not sustainable. There is verylittle in the way of biofuels generated in Africa. Policy and regulations are in the earlystages of development, with only 2 countries having clear policies. By 2030, SADC’senergy demand will have doubled and we will need bioenergy as a substitute.

The development of bioenergy in Africa does not need to be at the expense offood. We can work towards bioenergy and food security through the enablement ofnational and regional policy, the promotion of investment and R&D support. Theregion needs investors as much as investors need good opportunities for investment.

Africa is an important continent withthe opportunity to develop bioenergy policies.The last person to enter a market often has the opportunity to

avoid

the mistakes ofpredecessors. The objective of this Symposium is to form the parameters andmethodologies to create an incubator fund.

Bioenergy is about more than just Fuel, it’s a word that can mean everything in theRenewable Energy and Sustainable Energy sector.

The key driver globally is towardssustainability. It makes economic sense to find alternative fuels to fossil fuels and toadopt them in a way that is sustainable locally and effective for the people thatneed to use them. Large producers are looking for low cost inputs. They want a fuelthey can buy cheaply to lower their margins. Capital will rush into the space that isavailable if there is a mandatory requirement to change the habits of industry.Industry has been bashed by carbon credit initiatives by governments and policies inthe developed world, and policies and changes in policies are now restricting theability for the renewable and bioenergy sectors to gain traction. As a result thosewith the capital to spend are losing confidence.

Africa has a great opportunity to move into the bioenergy space because it doesn’thave the complexity of multi strata multi-state policies

that have reached a levelthat distract from projects. We can take advantage of the opportunities fordeveloping realistic policies and regulation rather than putting them in front ofpotential projects before they have the opportunity to get off the ground.

Our world is fragile and the resources init aremuch

dispersed. Africa is acontinent with a huge area. The greenarea is the belt between sub-SaharanAfrica down to the tip of Africa. Not allsources arein the right place at theright time.

The world isalsodriven bycommodities. They are alsomisalignedby price

speculation. It is too early inthe process to be speculating aboutthe natural development price ofbioenergy.

People are comparing the price of fossilfuel with

the

cost of bioenergy beforebioenergy projects have even been piloted or at a stage where you can see if theywill be a commercial success. We need a reality check on how long it will take forthe development of the industry.

In 2008, the World Bank estimated that 26% of households in Africa have no accessto electricity. This is the lowest electrification charter in the world. By 2050, 547 millionpeople will be without access to electricity.

One of the main reasons for this is the lack of policies for resources and commoditiesin Africa.Huge amounts of money are spent on generation and distribution of theseresources commodities but there is a lack of policies to support their movement anduse.

We need to find a new way to manage resources and we can’t rely ontraditional methods. The process needs traction. The Southern African Power Pool

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

8|46

5International Bio-Energy–Feedstock to Fuel PotentialDeployment Mode2050 l by Copernicus Institute(SAPP) has 12 countries and a grid network. Interconnecting to the electricity gridneeds money and only once you connect can you distribute electricity to thepeople.

Over the2 daysof the SymposiumDelegatesquestioned

whyAfrica hasthe lowestelectrification

rate globallyand how we might ensure that theprojected .6 billion people withoutpower can leverageAfrica’s

projectedposition as the second largest providerof biomass energy by 2050.Energygeneration

and distribution systemsaren’t working in Africa and weexamined

what needs to be done tochange this. We looked

atmajorfinance issues how the NEPAD IncubatorFund could help to close theInfrastructure and Bioenergy deficitbetween Africa and the Rest of theWorld.Then we can set up projects that can be developed in a way that anyproject can be measured to make sure it meets the requirements to

obtain funding.

Africa or Green Africa, has theopportunity to retain value andmargin and promote enterprisewith its resources, if Governmentsand Developers work together tobridge the finance gaps thatcurrently are retarding the abilityof Bioenergy projects in Africa toachieve its projected place asthe Worlds Number 2 producerand supplier of sustainableenergy.

The second day of the Symposium focused

on a number of business models forbioenergy and reviewed

the models and looked

at ways they can be funded andhow they can be improved. Thisgave

us the framework for the incubator.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

9|46

4.

Presentation:An

Energy Sector Briefing on Bio-Power Investment and Timetablefor Development in Southern Africa v World Markets

Presented by Mr BrianStatham (Chairman, South Africa National Energy Association(SANEA)

Electricity is not a form of primary energy, it is just a carrier. A discussion aboutelectricity does not equate to a discussion about energy. We need to look at totalsocietal needs andthese needs have

to be put into context and energy must bematched to need. If we presume that we can flatten the demand curve, there willbe too many people without access to energy globally. These people havelegitimate aspirations for access to energy.

Annually the World Energy Council conducts a survey of its members to determinewhatthe issues they are most concerned about are. The results are not static but thethemes and trends are good indicators of where policymakers should be directingtheir attention. Globally critical uncertainties don’t include bioenergy, and this is notseen as a priority in Africa. Decision makers have to be convinced that thedevelopment of biofuels needs to be highlighted.

The key drivers for the development of the industry are economic growth,demographic trends, and urbanisation. The critical uncertainties are governmentregulation and co-operation and integration between the public and privatesectors, between nations, and between businesses.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

10|46

We must learn to think of integrated systems using multiple sources of energy. This isof particular importance in Africa due to low population in rural communities anddistances between the communities are high. This requires a decentralised energysupply in the form of bioenergy.

The technologies currently used won’t go away. There has been huge investment inthese technologies and they need to run their course. The challenge is to make the10% use of bioenergy more effective and sustainable. It needs to be sustainable &sensible. Two transport scenarios were introduced:



Tollway: Regulated, with government intervention



Freeway: Free market

For biofuels the route would need to be “Tollway”, otherwise the risk is too high forinvestors. The process must be transparent, with open discussions. Governments andagencies must give clarity of process and efficiency of purpose.

Assessment of Energy and Climate Policies

While many companies are doing well on societal, developmental and economicissues, this is not true for energy management. It is important to get the balance andmix right. To balance the pressures, we need to look at national priorities

The Pyramid of Energy: We cannot successfully address higher order issues beforeproposing and implementing solutions for more direct needs. If Maslow were inenergy politics: he would argue that access to energy, supply security, energy costs,environmental issues and social acceptance are not subject to trade-off, but to ahierarchy:

we cannot successfully address higher order issues before proposing andimplementing solutions for more direct needs. Governments and aid agencies enterthe energy policy needs pyramid at the ‘local pollution and immediate nuisances’level, but miss out on putting basics of access and energy security in place. As aresult, sub-Saharan Africa has 12% access to electricity.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

11|46

Energy policymaking is a complex area with multiple objectives. Successful policieswill build on an open dialogue regarding potential

trade-offs, among multiple goals,multiple time periods and multiple participants. When establishing a policy,Policymakers must be transparent and explicit about the trade-offs involved and whythey are appropriate in order to gain acceptance and investment by relevantstakeholders.

Biofuels is structured within the oil and gas division within the commercial bank as welook at output (i.e. for transportation). The bank is in the top 3 financial institutions inthe oil and gas sector when measured by transactions, and hope to move intobiofuels in future.

The trigger for use of biofuels in South Africa will be government’s move to clean fuelswhich will initiate the legislation and regulation. It will require upgrades of refineries(investment and compensation), but who will fund it? What is the risk profile forinvestors? Biofuels

must be combined with clean fuel decisions. In South Africa it willmainly comprise sugar (proven and credit worthy).

Options for funding are corporate funding which is cheaper but the balance sheetfor the whole company is at risk and it is short term (3-5 yrs). Project finance is morepopular in South Africa because it has a longer tenure (10-17 yrs) but it takes longerto raise the money.

Questions

Q: Meghan Sapp: It is interesting that Standard Bank has positioned Bioenergy withinthe oil and gas portfolio. Oil and Gas guys don’t understand farming. How do youtrain on agricultural issues so that you can make a holistic decision on funding aproject?

Paul Eardley-Taylor: We work back though the value chain. We must have the rightpartners who know thespace. For example, in the sugar industry, we piggy back on

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

12|46

their expertise. In sorghum, we are not experts so we would need partners who werethe experts.

Q:

At what point in the development of a project would your bank offer finance?What are your conditions and what sort of return do you look for?

Paul Eardley-Taylor: We get involved in advising at the early stage of a project. Forexample, we entered the wind farm sector early in 2010 and they are being erectednow. We don’t provide development funding. Our pricing isn’t a secret.For a decentproject needing a 10 to 12 year loanall-in pricing is about 4%margin for us over thebase lending or bank rateOf the 4% it is important to note that a little over half is forus and the rest goes to financing markets and overhead charges. The normal loanpolicy for biofuels is less than for wind farms because in the case of wind farms the

government is essentially the buyer. In the case of biofuels you have a privatecompany and the credit profile is more risky.

Q: Albrecht Laufer: When you speak about setting up a project you are speakingabout setting up a production plant. When I’m speaking about a project ImeanR&D projects. Are there venture capital instruments in Southern Africa which wouldgo into risk funding of research and development?

Paul Eardley-Taylor: Yes. Africa is one of the easier places to find R&D funding andthe DFIs do this.

Q: Prof Thomson Sinkala: We are looking at things as the SADC region. Interest ratesdiffer from country to country, with higher rates in Zambia than in South Africa. Weneed a special fund for bioenergy in the SADC region.If SADC Governmentsintroduced mandatory biofuels standards the current market related investment riskwould be reduced. Prices of fuels in the region are high. Secondly, Standard bank is

dealing mainly with medium to large scale operators, but what about small scaleoperators. Can we cluster arrangements and have a common facility for riskreduction?

Paul Eardley-Taylor: Commercial banks in each country have different regulations.The price of money is determined by the economy and banking rules of eachcountry. We can’t transfer moneyfrom one country to another. We can’t lend fromSouth Africa to Zambia. DFIs can do this. On the second point our challenge is one ofscale. A project can take 2 to 3 years, and when it is finished we need to know wecan make money from it. So it is suggested that small projects consolidate. Theproblem is the country banking rules. We have to do due diligence on each project.The DFIs are better at this.

Q; The demand is there and will be growing. Time is against us in terms of coming upwith radical decisions. Banks have a risk adverse approach which can take 5 years.Are banks willing to climb out of the box and meet the demands for investment? If ittakes 4 to 5 years we lose the window of opportunity.

Gavin Maxwell: That is why we are here. This is not

adequately covered anywhere inthe world. Risk finance has changed globally since 2008. We need to find aconsensus on what we need to do and then encourage the financial institutions toshare the risk and reduce the exposure.

Q: Dwight Rosslee: Risk adverseness by commercial banks. If we took a solar projectto you and asked for finance I don’t think it would qualify because the cost ofproducing solar is more expensive than buying electricity.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

13|46

Paul Eardley-Taylor: PV Solar is cheaper than reserved margin. The economics arechanging. We do look at the economics. Getting the price per barrel for biofuelsdown is key. The oil price isn’t coming down any time soon and geographicallocation of African landlocked countries isn’t changing. So if you can get the

priceper barrel down you’ve got a great future.

Q: What do we need to do to get you to give loans to this industry?

Paul Eardley-Taylor: Partnership with existing industry players. They are able to dostructures for smaller players. We do due diligenceon them and they do duediligence on them.

Pangea is a trade organisation that fills the gap between industry in Europe andAfrica. They are the only private sector organisation that offers support to the Africanbioenergy sector. Europe has a negative perception of Africa in terms of policy andgovernance and this keeps investors away from the continent. The challengesinclude policy, policy-blending, draft policy, and policy under development forbiofuels. There is no cohesion in Africa and Pangea fills this gap. The opportunities forbiofuels inAfrica include reduction in oil imports, improved agricultural production,improved access to food, improved infrastructure, community development andincreased access to energy.

For Africa to get investment in bioenergy projects, one needs to relook attheBrazilian model used. Africa has tens of thousands of farmers with 1 to 2 acres ofland. Biofuels needs to be approached as an agricultural project, not energy. Thefocus should be on small scale off-grid energy access to households in rural areas(decentralised). Integrated projects could offset the energy risk by co-locating withexisting industry. Every international company operating in Africa has energy risk ontheir balance sheet. It would be possible to use these existing investors and existingwaste streams to offset risk through integrating bioenergy.

Provable sustainability has become an essential part of a business plan and isrequired by law. What is prescribed by EU law is what will drive the regulation of theindustry. These standards will be adopted by governments, customers, NGOs, farmersetc. This allows for the measuring of sustainability. Bonsucro has developed standardsfor pre-competitive measurement, and yields, profitability etc. that are realistic.Standards provide end users with a level of assurance of sustainable practises at milland farm level.

The Bonsucro Production Standard contains principlesand criteria for achievingsustainable production of sugarcane and all sugarcane derived products in respectof economic, social and environmental respects.

The Bonsucro Chain of Custody Standard contains a set of technical andadministrative requirementsto enable the tracking of claims on the sustainable

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

14|46

production of Bonsucro sugarcane and all sugarcane derived products along theentire supply chain after the mill and its cane supply; through conversion, processing,manufacturing, transformation and trade to use of all sugarcane derived products.

EU biofuels policy has targeted a level of 10% blended fuel in the transport sector by2020.

This is most likely to be biofuels. Imports from Africa will have to meetmandatory sustainable EU standards. Thepotential market for biofuels in the UK is inthe order of 5 billion litres of by 2020, and in the EU this is in the order of 25-30 billionlitres of biofuels by 2020.

One needs good distribution of land use. In Africa, a large proportion of land is forpasture. Intensified animal farming would free this land forbiofuels. Africa needs tofollow Brazil‘s model and zone areas for particular use. This should be done within alegal framework which forbids the planting in the incorrect crops in the inappropriatezones. This also avoids cultivation of sensitive areas. Biofuels is not only an energyissue, it also affects agricultural policy. All policies

implemented should be state notgovernment policies

and the legal framework should protect all stakeholders.Favourable tax systems and financing can enhance the marketfor sustainablebioenergy.

9.

Presentation:AfricanSugar

Industry:Briefing, Current Challenges and FutureOpportunities

Presented byDr.

Marilyn Govender,Manager

ofExternal Affairs:South African SugarAssociation)

Sugar cane is a sustainable sourceof renewable energy. South African sugar industryhas an annual capacity of 420,000 t and mills are located in rural areas. The industryharvests the fibre for Bagasse to use for electricity production. The industry promotes

best practices to international

standards. Lessons from Brazil and India include theneed for government regulation to support investment. Currently sugar industrysupplies energy for own use but is committed to become commercial producers andplan to invest R18 billion by 2019. They could work with Eskom to provide power inpeak winter demand times and during maintenance periods. Although NERSA haschanged their focus, the IPPP programme will include all renewables. The sugarindustry has the potential to provide is 1000MW of electricity.

was in itsinfancy. Small companies that could raise cash and offered investors some

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

15|46

cushioning for investment in a new industry when they didn’t know value of IT. If 3companies crashed, investment could still survive because the other 7 companiessurvived. Minimisation of risk.

With regards to bioenergy and sustainability, the US uses sustainability as corporatemantra. If we can claim a sustainable energy source, project executives will at leastlisten.

Real issues facing the funding of bioenergy projects in Africa are no different totraditional investment:



Is there an emerging technology or process?



How can we make sure technology doesn’t become redundant?



What is the opportunity for success?



What is the regional risk for investment (What does the region provide soinvestors can make comparisons to other investments?)

Once these

are

answered, it is important to get lawyers involved early:



To consider risk factors;



To define what investors are investing in;



Things take time for proper due diligence and it is important to get all therelevant issues on the table as soon as possible.

What goes into

an

incubator? Investors should be given a group of different stagedcompanies which are not too diversified. It would be better to have more than onefund with carefully selected projects in each. The US investor needs to have a keenunderstanding of the projects on offer in order for Africa to compete for finance.They must be able to define the risk factors, one of which is the possibility of beingsued in the USA by foreign companies for on the job injuries.

While biofuels is currently popular, this does not translate into investable dollars. Anincubator offers limited risk for the investor and gives anopportunity for a betteraccess to the understanding of geo-political and regulatory risks within the context ofwhere the investment will take place. When the deals are structured, investors willhave a choice and can assess the areas of best rates of return. The incubator alsoaccentuates the country and region and gives investors the ability to compareprojects in Africa compared to those in the USA or elsewhere in the world. Theincubator will allow investors to haveaccess to professionals and expertsto answertheir questions and this should speed up the process.

11.

Presentation: Outlook for Partnering and Funding Bioenergy Projects

Presented by Ms.Nomfundo Mthembu, DBSA

(Development Bank of Southern Africa)

The DBSA invests in sustainable infrastructure

for economic growth in the region. Theyact as both financier and facilitator. Products most relevant for investment in biofuelsprojects are: Project Preparation Funding (Technical Assistance Loans), CapacityBuilding and Advisory Work.

DBSAs energy sector priorities are understanding the supply and demand gaps(renewables are favoured), and biomass (who is active and what is the investmentstrategy?) The technical options for biomass utilisation are funding availability,

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

16|46

institutional capacity, community

awareness, government support and legal regime.They focus on how best to optimise investment, and highlight the importance ofcommunity involvement, understanding of the role of community and the benefits ofthe project. Projects must be well structures,

DBSAs mission on renewable energy is to: “advance development impact in theregion by expanding access to development finance and effectively integratingand implementing sustainable development solutions.” Their strategy is to:“Generating investment in assets, and to mobilise, develop, apply and shareknowledge in support of greater development effectiveness.”

The objective of the Symposium was to debate and develop a consensus tofacilitate funding to develop and finance projects in Southern Africa. We wanted

toput together a framework for an incubator and incubator fund. This has not beendone before for bioenergy. The approach to biofuels is one of “business as usual”.Industry as a whole doesn’t believe that there is a cogent, intelligent approach tobioenergy. The distance between our future in bioenergy and delivery is 15 to 20years away. The social and industrial evolution from research to deployment in manysectors is 20 years at a huge cost.

Bioenergy projects can’t find funding and that is because nothingis happening onthe ground. The

position paper outlined

the need to create a complete structure todevelop

and

facilitate all renewable energies. Developers have become despairingabout their opportunities for success.

Who owns this space? No-one owns it. The creation of policies is masking what isactually being done.

Africa is a Land Bank, offering low cost land. Plantations used to be huge and ownedby one person and employing thousands of people. Should we give big corporationsthe control of the feedstock? We do need well managed plantations and feedstockthat are appropriate. An incubator would be able to tap into the agronomytechnology available. Farmers don’t know what they will be paid for their crop untilthe cheque arrives in the post. Transport, processing, value refining are all industrialprocesses, but when you put the whole thing together you start getting a tradingflow and this is what needs to be created in southern Africa from the resources andsupply chains and materials that are already there. You won’t get finance unless youhave a trading flow. This creates a matrix of demand. Should we remove stimulusentirely or rely on demand? What about the low carbon bond price? This has causedgrowercontracts to be cancelled. The answer is to look at small local projects. It iseasier to get funding and easier to prove the technology on small projects, and then

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

17|46

you can cluster them. There is a sustainability weakness, a risk capital gap, acontractual

weakness, an asset finance gap and competitive risk weakness.

We need to look at aligning funding and a project. How long will it take to deliver?Time is money so the time line needs to be shortened. Project investment conditionsin this region are important for investors. How do we reduce investor risk?Government involvement is a risk and this needs to be overcome. Asset structuringneeds the correct structures. Territory and economic factors are also important. If anincubator fund is set up, it has to reconcile the fund in order for it to be sustainable.Most funds want double digit returns in 3 years. Bioenergy projects take 5 to 10 years.We need 20 year projects. Small companies need a partner to leverage funding. Weneed secure contracts. Investor risk has to be reduced. An incubator can houseprojects, facilitate research and all expertise is housed under one roof. They aretenants under one roof. This is an economic way to marshal investments andinvestors have confidence that the incubator can protect their interests. Anincubator is a focal point for funders and developers for all bioenergy.

Questions

Q: Malcolm McNeil: What is the scope of investment required?

GW: Most funds are set at €30-50

million, and one would have to traveltheglobe toget over €150 million. There is a lot of competition for funds. The incubator needs €50-100 million with a minimum of €3-5 million investment pool for the commercial

sector,€1-2 million for philanthropic sector and matching funds from government anddevelopment groups. There is 26 billion in fund capacity in the US for African projects.In London there are investment funds for “green” development worth €4-5 billion in 8or more funds. None of this money is going to Africa or to projects that can’t turn aprofit within 4 years. What type of investment? What is the maximum debt ceiling forinvestment?

Q: Nomfundo Mthembu: One hundred million, but the DBSA doesn’t have themandate.

Q: What is the exit market?

GM: This will be a revolving fund with no closing date. This is a Nepad initiative. Arevolving fund will take equity on a convertible stock basis on projects. Theseconvertible stocks could be carbon bonds, any form of paper that has a value to thefund that is tradable, convertible or redeemable. A revolving fund to provide the

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

18|46

ability to, at point of entry to take low value stock which underwrites the primaryinvestment which is then redeemable by the promoter / operator or convertible bythe fund in the event that there is a restructuring of the project. The premium note onthe equity is low and it stays within the low margins available. The reason for theliquidity in the market is the prime borrowing rate is very low. The prime margin has tobe within acertain requirement. All potential investors have different criteria,according to their mandate. Some investment is outside the comfort zone ofcommercial banks. But there is a degree of funding that has been earmarked for thistype of investment. This Symposium needs to measure and discuss finance options.

Q: Malcolm McNeil: Who is the decision maker?

GM: The stake holder board, with Nepad as the

chairman, is the decision maker. Theincubator hub holds the projects. The output from the incubation process is thefocus. The Nepad expert panel will have the authority to make decisions. Theseexperts need to be qualified in business, legal, financial, local etc.

given the opportunity to present their business case or pitch for investment or PartnerCooperation. Professional and investment Panels reviewed

how the projects couldbe best assisted to achieve their respective goals and financial needs.

Four bio-energy projects and one market sector project at different but criticalstages on their development and deploymentwere

presented. Thereafter delegateswere

given an opportunity to consider each project and lodge questions withpresenters. A simple analysis questionnaire to evaluate the relative business caseswas

available to all delegates.

The aimwas

to raise money for the projects presented. Most projects

were

off-startsfrom big organisations. Entrepreneurs and developers don’t have access to skills andfunds. The audiencewasasked to consider how an incubator would be able to assistthese project developers. The questions to be addressed would include:Is theproject bankable? Would you invest personally? Delegateswere

required to selectthe project with the best potential, and score it on the score sheet provided.

After the projectswere

presented, therewas

debate around the projects and theleaderstook

questions.

2.

Project:Production of Cellulosic Ethanol fromPaper Sludge Waste

Presented by Dr.Emile Van Zyl,BiomassTechnologies Pty Ltd

Biomass Technologies is a leader in the development of next generation cellulosicethanol in Africa. The project is in its start-up phase and Biomass Technologies areready to roll out some of the 2nd-generation technologies. The composition ofLingocellulose is: Cellulose (46%), Lignum (28%), Xylon 25% and Arabinan (2%).Hexoses (extracted from Cellulose) and

Pentoses (extracted from Xylan) isfermentable. The Cellulose to Bioethanol Process is illustrated below. This is theclassical process, which is costly. However, they have developed technology

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

19|46

whereby they combine the 2 processes of cellulose and yeastproduction, and theenzymes do the fermentation.

The business model is as follows. They have concentrated on Model 1 so they cango to commercial roll-out.

The key business concepts are:



Currently financed by “sweat capital”;



Aiming for semi-commercial projects as the next value inflection, leading tofirst commercial plant funded by semi-governmental and private sources with2-4 years to completion of first demonstration milestones;

Looking for private partner to invest in demonstration/commercial projects.Owner of production facility, feedstock, off-take;



Africa is only utilising 15% of its agricultural capacity

-

-

the project can providethe world with bio-energy, without negatively affecting

food production.

The project will make use of paper sludge. This contains degraded cellulose fibresand 15 to 50 dry tons per site lands in the landfill. Landfill costs are high and have anenvironmental impact in terms of space, water to landfill (60%+ moisture) andmethane release.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

20|46

Biomass Technologies have the technology to transform waste into green transportfuel. This will:



Mitigate environmental impacts with attractive returns;



Convert paper sludge to bio-ethanol with CBP (one-step conversion);



Avoid high enzyme costs (critical for viability);



Reduce waste to landfill (50%) (GHG, space);



Reduce water content and water to landfill;



Does not impact on food production;



Ethanol is a green replacement for fossil fuel.

The product (liquid bio-fuel) has the following advantages:



Liquid bio-fuels critical for a sustainable transport sector;



Bio-ethanol is a high octane fuel enhancer;



Well-established blending methods;



Modern cars do not require engine adjustment to run on E10 (up till E15recently accepted in USA);



Mandatory blending recently proposed by South African government.

The roll-out of the project will entail 4 on-site mobile mills for ethanol production inpartnership with the global paper industry and this will allow for the production of 14million litres of ethanol per annum, with a revenue of R75 million and a 27% rate ofreturn. Xylose sugar waste streams from biomass processing are in the region of 40million litres per ethanol per mobile site, and cellulose ethanol from biomass residues,co-located with sugar based ethanol, offer production rates of up to 160 million litresper annum of ethanol per site. The mobile unit is a 12 metre long container whichcan

be transported to site.

Financial Summary:



The selling price of ethanol in South Africa is about R5.50 per litre;



Production Scale: 50 dry tons per day;



Net present value (NPV): R26.8 million (€2.7 million);



Internal Rate of Return (IRR):



Payback: 3 years;



Viable with 50% reductions.

The scale of economies is very important. The total pilot funding required would beR13.2 million (€1.3 million) over 3 years.

Biomass Technologies have a number of interested parties.

Company 1: Letter of intent. Interest in possible commercialisation oncedemonstration has proved successful.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

21|46

Company 2: Interest in possible commercialisation once demonstration has provedsuccessful. Project needs to find ways of separating fibre from filler materials.

Company 3: Take-off market and wants to expand feedstock for production ofethanol.

The project is sustainable:



Solution that they will market is bio-ethanol from waste product;



Scalable production volume;



Technology adaptable (wastes and residues);



Environmental benefits;



Economic sustainability;



Social benefits: Reduced landfill;



Jobs in commercial projects (Construction, operation, transport).

Questions

Q:

Meghan Sapp (Pangea): If a company, not located in South Africa, wanted toscale up this project, can

DBSA do this internationally?

A:

Nomfundo Mthembu (DBSA): There must be an indigenous component in aproject. If indigenous technology, then DBSA could look at it–

depends on thestructure.

Q:

Nomfundo Mthembu (DBSA): For project development we need tounderstandstrategy. Are you looking for owners or for investors to take up the technology? Areyou researchers and developers and plan to give the project to entrepreneurs tocommercialise, or do you plan to be part of the commercialisation?

A:

Emile van Zyl (Biomass Technologies): We don’t want to sell it off. We areresearchers and would like to be the technical provider right up tocommercialisation and to hold shares in the company. Technology sell off is cheap,so we will make our money by keeping some investment in the commercialcompany.

3.

Project:Multi Regional Project for TorrifiedBamboo

Biomass toCo-Fire

Presented byMr.

Markus Reichardt,Director Biomass Corporation Ltd

The business concept is to use large-scale bamboo planting as a feedstock for thecarbonisation processes to produce products for energy and industrial markets. TheBioMass Corporation SA (Pty) Ltd is a privately held SPV who investors have broughttogether bamboo and processing IP, business development experience as well asseed capital to take project to feasibility study stage. There are 4 investors with fundsand IP to explore the idea, including scientists, engineers and a funder. It has taken18 months to pre-feasibility phase and they are in the process of finalising thefeasibility and including pilot tests.

The project looks at the utilisation of bamboo as input for the smelter industry in SouthAfrica. Bamboo falls in between sugar and forestry.It has different ecologicalrequirements, and holds a niche position. Plantation forestry in Southern Africa has

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

22|46

reached its ecologically sustainable limits. Bamboo, which is the fastest-growingwoody plant in the world, can grow in sub-optimal agricultural land while notdegrading long-term soil quality. Giant bamboo can sequester more CO2 than otherplants due to rapid growth rates. Giant bamboo matures within 4 years after which itcan yield 30-60 tons/ha per annum over a 40-60 year period. Giant bamboo

is anexotic but legal for nursery grow-out. Plantations can be low or high intensity. Theproject plans to use out-growers and the project will remain low-tech. There is noconflict with forestry or food production, and bamboo is kinder to water resources.Biomass Corporation Ltd has secured 2,500 hectares of suitable land in the EasternCape in partnership with local communities who will be the out-growers.The projectwants to help manage farms with Bamboo but does not need ownership ofplantations.

The

project is as a result of a direct request from a non-ferrous smelting group. Theyface rising costs for reductants and are currently using anthracite or coke, whichattract green taxes. They are concerned about how these green taxes will affectcash flow

and so they are looking for alternative fuels. The smelter has specified whatthey need, and the project must meet their requirements. Biomass Corporationneeds to do large scale testing and must be able to deliver the required volumes.

The process involves drying (moisture content can be a problem), controlled pyrolysisprocess and controlled cooling process (it can be volatile if temperature cools tooquickly). The waste is heat intense and should be able to capture 75% (currently 50%)to reduce dependence on Eskom.

They are at the one ton stage but need to look at a high volume stage. The bamboohas a 9cm diameter in 4 years and is used in a carbonised process.

The initial client is a non ferrous smelter, and the project has the potential to expandto other smelters / other industries.

Some 2,500 ha of land has been identified, and this will produce 40 tons of bambooper ha. They are in the process of negotiating with communities for communal landuse, and for the community to be out-growers on plots

of 30-100 hectares in size (nottoo large because of danger from fires etc). Mondi (a large South African paperproducer and owner of plantations) has an outgrower’s scheme and they arelooking at their model to support the community, develop skills and reduce deliveryrisk. The project needs 80,000 tons for the processing into 20,000 tons of final product.It will also allow for the development of a substantial transport business.

The prospective client will set the price. Biomass Corporation requires R154 million(€15 million) of funding for the reductant plant. For a steady state of production, theoperating cost is R34 million (€3.4 million). The running costs are about 3% of Capex.Assuming middle range of prices (before tax), gross revenue is estimated to be R60million (€6 million) per annum. Some 30 people will be employed to run the plant andextension services and the project will be spread over 5 separate communities in theEastern Cape. The project will also create business value through maintenance ofvehicles, wood chipping etc. Overall the project will lead to 150 formal full time jobsand significant seasonal opportunities. Environmentally, even if it goes wrong, it willnot leave behind a wasteland. The soil will be enhanced in quality, andtheplantation will be rain dependent.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

23|46

The feasibility study has been completed (at a cost of R1 million / €100,000) and theproject carries no debt. They are looking for investors for development (outgrowersand plantation) and discussion with customers.

Questions

Q: Gavin Maxwell: Do you have a finite study showing yield of 30 to 60 t per hectare?

A: Markus Reinhardt: Yes, there have been many studies carried out in the tropics aswell as in Mozambique. In the tropic, the yield can be as high as 100 t/ha. We don’thave faith in intensive plantations. We want to develop the plantations within thecommunities and work with skills appropriate for rural districts. We must be able totrain the community within 3 to 6 weeks.

Q:What is the moisture content of the bamboo?

A: Markus Reinhardt: It is 28% (between 20% and 28%) at the point of harvest,depending on the season. The moisture content is 12-14% when it goes into process.

Q: Do you have a Letter of Intent from the Smelter?

A: Markus Reinhardt: We have an

open ended agreement for 120,000 t. It is a 3month contract. The smelter uses 120,000t per annum and they need a firmcommitment for a 5 year period. We plan to outsource logistics in the area and thiswill move a small business to a more sizable enterprise. They would also needfunding.

Q:How much funding is required?

A: Markus Reinhardt: €25-30 million will allow production within 1 year.

Q: What about waste?

A: Markus Reinhardt: Off cuts are mulched and put back into the soil. The tar isvolatilised and an upscaling process is used and it is contained within therequirements of South African legislation.

Q: do you have other clients?

A: Markus Reinhardt: Production is calculated for one client, but the project can beupscaled for additional clients. One client is risky but because it is a multinational, it isacceptable risk. The project is able to produce 10,000t modular process units and wewill be able to expand to other clients.

Q: Does investment include social study?

A: Markus Reinhardt: No.At this stage it is simply developed to levels required by theclient, but we will engage with the community at a later stage. The permit process isstraightforward according to South African legislation. If we access internationalfunding, we will look at

social studies.

4.

Project:Commercial Scale Biogas Conversion in African Farm Sectors

Presented byMr.

Dwight Rosslee, CEO Biogas Power Technology

This is an investment grade bioenergy project. In order to establish a fund or look forfunding the investor must be able to make a return. Initially it was thought that theproject would make money from CERs and we have had to change this model. Theproject objectives are to produce energy for broiler farms.Broiler Chickens

are for

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

24|46

meat in chicken houses which accommodate from 12,000 to 40,000 birds per house.In the rest of Africa the processing units are smaller at 12,000 to 20,000 birds perhouse. Thecycle times are 30 to 40 days to produce a 1.5kg chicken ready formarket. Each chicken consumes 1.7kg to 2kg of feed per kg of meat. This feedbecomes litter and this is the fuel for the project. The average boiler farm produces840,000 birds per year which translates into 12,000t of chicken meat and 2,200tchicken litter (fuel). The energy contained in waste is double that needed by houseto run it.

SADCs broiler litter production is:



3.3 million tons of litter per annum;



43,000GJ of energy potential;



408 MW power installed capacity; and



1.5% of SADC’s electricity consumption.

The key challenge is the difficult substrate–

the litter is full of ammonia, and lignin isfound in the bedding and needs treatment. Up until now it couldn’t be treatedeconomically.

The energy that can be produced during a cycle is double that needed to raisechickens. However one needs to consider the energy balance required. At thebeginning of cycle, the farmer needs to supply heat. As the flock get bigger theirbodies produce heat and the farmer has to cool the chicken houses. Propertemperature control is paramount to the process, and one needs to size generationof electricity to what can be used. There is a need for supplement energy atbeginning of the process and there is excess energy at the end of the cycle.

The process to provide the correct heat balance is best addressed by the use ofbiogas, using an Anaerobic Digester tool.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

25|46

The broiler model architecture is illustrated below:

The cost of providing this energy solution is R7 (€0.7) per GJ. The project cost for alarge commercial operation is R24 million (€2.4 million) over 4 years (27% IRR). Theproject cost for smaller farms is R2.75 million (€275,000) over 5 years:

The low hanging fruit is the largecommercial farms while the smaller farms needfunding and it is estimated that the project would need R300 million (€30 million) infunding. A headline funder is required.

and equipment for free and free electricity and they kept thecarbon credits. We have now limited the scale of the project and the farmer getsreal returns. We changed the architecture and the project is paying.

Direvo Industrial Biotechnology has expertise in enzymes, strains and bio-processes.They can screen 150 samples per day and need strong assay development forpositive and negative results. The process is based on microbiology laboratories. Thechart below shows the plan to market for their products and services:

The services can bring in cash and are venture capital based. They want to raiseasset value.

BluZY-D is a corn based biofuels, based in the USA.

It uses a dry mill ethanol processfor the conversion of corn to Bioethanol and Distillers Grain (DDGS). BluZy-D improvesDDGS replacing expensive corn and soy meal in poultry and hog diets.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

27|46

BluCon-P is trademarked and registered in Germany. It is a consolidated processwhich delivers cost effective conversion of lignocelluloses to bio-fuels and chemicals.Drivers of industry will lead the gradually replacement of oil with biomass-basedsugars.Digested

sugars

will be converted directly to final products. The costimplications will be a reduction from €400 per ton using sugar crops and grain starchto about €150 per ton using wood and grasses.

First generation fuels used for the conversion to ethanol were corn, sugarcane andwheat. Second generation fuels

were corn stover, bagasse and wheat straw and thenew frontier will use poplar, miscanthus and algae. The key drivers are cost(feedstock cost, Capex and Opex); availability (easy storage and logistics, securesupply all year round, stable pricing), environment (reduced green house gases),and ethics. SADC is an ideal source for perennial grasses.

BluCon-P does not only make ethanol, it also produces lactic acid. The secondgeneration Ethanol Process Evolution is illustrated below:

Direvo Industrial Biotechnology is a small company and needs to partner andcollaborate to bring the project on-line. Their current partners include: LundUniversity, Ulm University, Andritz, Biotech Corp. They have a 10 year track record oftechnology transfer and of managing

some 30 external projects. The next step is apilot plant experiment (contract without investment), and the path to market is:

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

28|46



Proprietary, novel technology is at laboratory stage, 7 patent applicationshave been filed, and 15 novel strains deposited.Current conversion levelsprovide a plausible basis for a high probability of success.



Need to find investors to take the development through to pilot plant stage.The project requires strategic partner(s),to license technology and receiveroyalties subject to delivery milestones.



With only a limited number of direct technology competitors and acomparatively huge end market Direvo is well positioned to provide acompetitive technology basis to large companies in the energy or chemicalindustries.

The required investment for pilot stage is €15 million. It will take 2 to 3 years to bringthe project to a stage valued at100m-200m ($ million)

by taking the company to IPOor selling the company or strategic partnering of a license projects. There will be ahuge demand as 500 liquid-cellular processing plants are needed in the USA alone.

Questions

Q. Gavin Maxwell: What is the current funding requirement?

A: Dr Albrecht Laufer: A net investment of €15 million is required. We need 2-3 years tocontinue to improve strains and pilot plant experiments in 2013. We know the cost ofthe pilot plant.

Q.

Competitively, what is your position?

A: Dr Albrecht Laufer: We have a few competitors such as the Viscoma (USA) yeastproject, TMO Renewables and a few others. We are well positioned relative to thesize of market. There will be space for us.

Q:

What is the return on investment?

A: Dr Albrecht Laufer: An investor would buy in at today’s value and exit in 3 years.Initial return, licenses to technology, each factory will

bring income to the investor.

Q. Brian Statham: What is the context of the project in SADC?

A: Dr Albrecht Laufer: The use of the technology for feedstock.

Q: Emile van Zyl: How robust is the technology? Do you see yourselves as technologyproviders inAfrica or will you move your plants to Africa?

A: Dr Albrecht Laufer: The strain is already engineering for increased robustness. Weare looking for a long distance partner in Africa. We will not move operations toAfrica.

6.

Project:ABioenergyProject Investmentin Zambia

Presented byProfessor Thomson Sinkala,Zambia Biofuels Association

The Zambia Biofuels Association works towards food / fuel integration. In 2006 theZambian government organised a stakeholder‘s consultative workshop for liquidbiofuels development, and as a result the Biofuels Association of Zambia wasregistered. In 2007, Government approved the Energy Policy (comprising biofuels),and in December 2007 Government convened a stakeholder workshops to map outa strategy to roll out the National Energy Policy. In April 2008 Government issued aStatutory Instrument (SI 42) which legalises biofuels. In May 2008 the Energy

Internal Policy Regulations in Zambia include the Draft Biofuels Regulations, Drafttechnical guidelines for production, storage, transportation and retailing of biofuels,Biofuels incentives and pricing of biofuels. These regulations are based oninternational trends and take into consideration funding for R&D, low interestinvestment funds for the industry, distribution/consumer infrastructure and consumerinformation.

The key players are small and medium producers. Prices for bio-energy have not yetbeen published so no-one can go into production. Small producers are mainlygrowing jatropha, but sugar also has great potential. Other projects in the countryare Zampalm which is a palm production project with biofuels potential, and KaidiBiomass Zambia Limited which has a US$6 billion investment in Zambia in multiplefuels. Zambia has ample land and the ratio of number of hectares per person is high.It is what the land is used for that is important and Zambia can comfortably use asmuch as 20 million ha for bioenergy. Zambia can learn from the cane industry inBrazil.

Thomro Biofuels/Food Integrated Project

The project comprises weed management, pollination, pest and diseasemanagement, fertiliser supply, harvest and control and final product. At the momentproduction of jatropha oil is expensive, making biodiesel more costly than fossildiesel. The project is looking at ways to cut costs in the production of the feedstock.For weed management goats are used because they don’t eat jatropha andadditional income can be made from the sale of goat’s milk, cheese and meat. Biproducts from feedstock can be used as food for the goats and poultry in the dryseason, for example,sweet sorghum, maize, soy beans, and cassava. Wire fencingcan be replaced by planting spiky plants which can be converted into biofuels.Pollination is encouraged by keeping bees and excess pollen can be harvested ashoney and beeswax. Termite and insectmanagement can be managed usingjatropha which gets rid of 70% of insects and poultry can also be used to eattermites. Fertiliser supply can be produced from poultry and livestock droppingswhich have high nutrient content. Droppings can also be used as manure to growvegetables. The seed yield from jatropha is about 10kg per plant. These savingsmake jatropha significantly more competitive.

The Mangeso Modular Biorefinery is a one million litre refinery to be imported fromUSA and the project is looking for US$2.5 million to fund the purchase of the refinery.Biofuels has the support of government and Zambia has a conducive agriculturaland investment climate for the industry. Biofuels will contribute to food security andpoverty reduction in the country.

No Questions

7.

Project Panel Q&A and Analysis

Moderated by Gavin Maxwell (Symposium Chairman)

The morning’s enterprise and technology presentersformed a panel and the meritsof

each project, it’s

expert needs and investment criteria were examined. Delegates

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

30|46

took into consideration current market conditions and questioned how best tosupport the development and investment needs of Bioenergy projects.

Panel Members

AL: Dr Albrecht Laufer

MR: Markus Reinhardt

EVZ: Prof Emile van Zyl

TS: Prof Thomson Sinkala

DR: Dwight Rosslee

Introduction

The purposewas

to look at the key issues for the projects presented. Theywereadiverse range of projects, chosen because of their diversity or synergies or

missingcomponents. All these projects could be incubated and all had

fundingrequirements-

asset or capital or operating capital. All the projects were

welldefined. Researchwas a little more difficult as it was

more technical and not directlytranslatable into fuels or products.

The presentersidentified who owned the projects but didn’t mention

who owned

theintellectual property. IP or the ability to control part of itwas

a key focus area. It is theprotection that an investor will look for. Theprotection of IP can be too expensiveunless someone actually makes

a claim, and that is when the costs really start.Projects may just need todeploy quickly

to generate cash flow. Not all projectsshowed cash flow. If one can’t show cash flow then the project had

not beenthought through to include incidental costs and they may need to ask for extrafunding at a later stage.

Questions to Project Presenters

Q:

GM: How would each of the projects enter the incubator?

Q: Prof Elmissiry: You may not get thefinance you want out of the symposium. Whatwould you like the Fund to do for you when we finish today? What can we do to takeyou from where you are to where you want to be?

AL: I want the incubator to provide capital only. I know my partners and haveidentified potential partners in Africa.

MR:

We need capital but want to get there in ways that create partnerships toimprove the project. We don’t want to get selective on information. We need apartner that has the incentive to improve the project with us. We want criticalfeedback. The project can benefit through a partnership with funders.

EVZ:

We want the incubator to provide a go-between–

from proof of concept tocommercial rollout. Funding required so we can do costings and a business planwell. Wewant funding for the preparation of the final step and to help raise the levelof the project.

TS:

The project funding is needed in two phases. Firstly it is needed for ademonstration plant. We have secured the technology and 4 years supply ofmolasses. We are working on the final projection for producer prices. Phase 1 is doneand now we need US$500,000 funding. Phase two is the full scale development. We

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

31|46

need our own feedstock development. The first phase is in the city but the land forthe full scale project is 600km away.

AL: A capital injection would be very useful to have a place to do pilot anddemonstration work and connect to feedstock supply in Africa. We would develop afeedstock chain and research which biofuels are best for which sites. The incubatorcould provide /nurture project with capital.

DR: We need money for project finance for our clients. We have done the homeworkand have a demo plant for swines which is operational. Pulling the packagetogether which includes funding and taking it to potential clients will allow for quickerrollout. The big players don’t need finance, but for small farmers it is an importantfocus otherwise they will get left behind. With a package, we can rollout thetechnology quickly.

Q: Malcolm McNeil: Everyone is vague on IP. There is a cost to maintain IP. Legally, aspart of due diligence, from a US standpoint we give a lot of credence to IP and thevalue of the IP. Does everyone know what IP you have in the portfolios as part of theinvestment package to look for investor suitors?

DR: We have shown the architecture–

this is our IP. But this without tools it is aproblem. We own tools and you can’t get it elsewhere. This is our safeguard.

TS: My farm is open and anyone can come and see what I am doing. I have beendisappointed because one national corporation showed interest and we presentedproposals to them and then they went quiet. What is shown is straightforward, but Ihave worked out the numbers in terms of how many goats are needed per hectare,how much crop to plant each year. You can take all this information-

let it helpothers.

EVZ: The IP has been developed with Mascoma and they own the IP. We intend togo to next phase and negotiate for paper sludge. We can go to any company whoowns IP. The pitfall is TIA and the Bill for IP with public funding. The university will securethe IP. We need to give investor’s access to IP, but not ownership. We are not totallylinked to one company. We have an MOU with the university and if we are successfulthey will secure the IP. The incubator phase then can have good agreements withuniversity.

MR: Imitation is the best form of flattery. IP across borders in SADC is difficult tomaintain and very expensive. You can’t patent, but you can adjust the organisationfor higher yields. We know

that and hope it will stay with the original investors. Wecan’t patent these technologies, but the modified processes are creating a barrierto entry. A competitor would have to invest similar amounts of money, andundertake the same due diligence. Thisprovides informal IP for optimised plant andprocess for this situation. Don’t need to invest much more in this area at this stage.

AL: We have a 7 patent application for the use of micro organisms and strainsdeposited in strains bank. We can process the

know-how. We can provide investorswith a good exit strategy and so it’s important to have IP. If we want to license theprocess later they need the IP. If we sell to one of the big users, then patents are notas important, just the technology/ process knowhow.

Q: GM: If the incubator had the ability to provide IP protection, would you want theprotection services to be available?

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

32|46

MR: The patent is very specific to the area of the process which has to be new and abenefit. You can’t easily patent a change. Not everything is patentable.

EVZ: Once you start to get into the bigger arena it is good to have assistance in thisarea.

MR: Patents are outward looking and as a business grows it may be overlooked. It isalso important to be inward looking. The original team may fracture and is importantthat this doesn’t lead to debilitation competition within the sector. All the littleagreements within the organisation are as important as IP.

AL: The incubator can offer IP and legal support. How do you exit the incubator? Theincubator will give technology to biotech enterprise at a value. It can be used as alever. I need my own IP to negotiate with the incubator.

Q: GM

(directed at Dwight Rosslee): If you need more security in Africa, would youbuy equity with customers to secure your position? Could you buy into a clientcompany, for example a 30% share?

DR:

Yes, we have the opportunity tobuy a share of the parent company. We canleverage our technology capability to get a good rate to buy into a company. IP isworth protection, but it needs backup money to protect. Enforcing protection is veryexpensive.

Delegate: IP goes with credibility. The incubator will give the project developers somesecurity from unscrupulous investors.

Q: Alexandre Strapasson: What is the role of the incubator and how will it helpprojects to be developed. Perhaps the incubator has 3 main possible areas of work–

to support companies, government and R&D. In terms of companies, I am not clearhow it will offer companies funding. Funding from Development Banks, andEuropean and African Banks is available to support this type of project. Is it necessaryto have another type of fund? What will be the difference of the incubator funding?R&D can enhance the power of universities so we rather need a centre ofintelligence. Within Nepad we should have sources of databases, links togovernments, discussions with the private

sector, facilitate with banks, educationalinstitutions etc.

DR: Industry needs action not talk. We need projects on the ground.

MR: I was involved in a mushroom farm in a mine tunnel. We needed a €15,000business investment. Everything was in place including the money but thedepartments of mining and agriculture could not agree who was responsible. If weget a project onto the table, then everybody will come on line.

TS: In Zambia the interest rates are very high. At the beginning we applied forUS$200,000 at 46% and were expected to start paying back the loan within in 6months. We need a fund that recognises that this is a new industry. Banks don’tunderstand, so an incubator fund is crucial.

Q: GM (directed at DBSA): The objective of the incubatoris to accelerate thedevelopment of projects by providing risk capital and expertise on an equity basis.They would be expected to provide equity in way of redeemable stock that can bebought back from the incubator at a low premium. Would the DBSA investin anincubator fund?

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

33|46

Nomfundo Mthembu: The role the DBSA would play is one of developmentalapproach and its alliance with Nepad. DBSA would have a critical mass approach.We wouldn’t necessarily put money into the incubator, but rather play a facilitator

role, which is the gap between these concepts and a feasibility that needs to bequalified for bankers in order to present the opportunity to the potential funders. Thebusiness plan can be validated and should include a cash flow, good business plan,and

bankability as well as resource mobilisation to bridge the gap. The projects areat the conceptualisation stage, so where is the money? The incubator’s role shouldbe to market the projects to developmental finance institutions and commercialbanks.

GM:If DR needed finance for his customers and the project has been audited by theincubator then the DBSA would provide finance to his customers?

Nomfundo Mthembu: Yes, it is within our scope.

GM: We need cogent well-structured financial products on the shelf in theincubator> A developer will be offered by the incubator a range of financialproducts. Not all products will be suitable for each project. But incubator will besuitable for all types of projects. The incubator is a funnel for the finance solutions.

Q: Dr Albrecht Laufer:

Who is funding the incubator?

GM: The incubator is funded as a consolidated centre. If the industry is fragmented itis difficult to get integration and economies of scale that come from integration ofthe bioenergy systems. The projects on show have a wide range of projectdevelopers. An incubator provides a safe pair of hands. It needs a technical agencywith international respect and responsibility credentials to be a leader of the process.Enterprise development zones can incentivise people to develop the necessarytechnologies. We need to take enterprise development capital from NEPAD and willlead process. Why not use existing Nepad infrastructure? Because they don’t havethe correct skills and knowledge. We need access to

piloting and host locations innon-risk areas. An incubator can facilitate the piloting. The customer needs to becloser to the investor. The incubator needs to be centre of excellence.

Q: Meghan Sapp: Using the Basque region of Spain as an example, whereby theyhave developed 3 industrial parks as enterprise and technical incubators. Onebuilding has about 30 offices and 15 workshops. Rental is paid out of subsidies andthe interaction with all the other companies in the park is important. We network andsource from one another. The Government agency that runs it offers leverage. Theyoffer speed dating with investors–

financial institutions, good rates for trade fairs,classes and courses etc. This is the key for a model for the incubator–

to co locatewith other entrepreneurs.

AL:

This is implicit for such a base, but it is not good to put too much money in oneplace. It would be better to make good connections to other places. A pilot couldbe located at Prof Sinkala’s site. You need to network and build facilities where youearn the money.

GM: The incubator fund is an enabling fund. It is funded by enabling initiatives fromthe EU. Funders have expressed interest because it is centralised. If conditionsappear to be right you will get investors. Consolidation is important. The incubatorfocuses the attention in a most effective way and most cost effective way. We needcommercial skills to keep traction. These 5 projects need to go through the risk

gap.Unlocking funds is very difficult without an incubator.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

34|46

DR:

The business has taken 5 years to first order. There is no shortage and noreplacement for sweat capital. If you don’t need money the banks will give it to you.There is no home for peoplewho develop new ideas. We were lucky to survive, butlots of projects don’t get there. Development agencies and financial houses–

weneed a grouping that can take an educated bet and house a number of projects tooffset the losses. We must structure a number of projects together for risk.

GM:

We can invite financial companies to an incubator review once a month andpresent some projects / companies that are already involved, some interested andthey can see that the incubator has done due diligence. The risk is not only withdevelopers but with the whole supply chain. We need to de-risk getting the projectsinto the field.

TS:

Zambia will have a problem developing Aviation grade fuels. The origin to why weare here is energy security. When EU and US become

self-sufficient, who will fundAfrica to keep cheap fuel flowing? We need to look at poverty and energy insecurityto get projects moving.

EVZ: The incubator gives credibility and a nest. It helps get projects out there andgives critical mass.

GM: We won’t build an energy park initially. First we need the projects to put into anincubator. Within 1 year we plan for a centre of excellence in order to create criticalmass.

Q: Malcolm McNeil: Where is the money coming from? The private model is forabusiness development company to put in capital and then look for projects andtake a percentage of each company, and provide management skills andknowledge. The issue is each project is in a different phase. It is critical for theincubator hub to determine parameters for projects. There is no shortage of projects.When they see the terms for giving up a percentage of their company the projectcompanies many leave because they are too far down the process. To create theincubator we need a common element

of what is an ideal project.

GM:

The Position Paper is the starting point, and gives three reasons to focus thedevelopment. Now we can launch the incubator and fund. Africa is our major asset.In 2050, Sub-Saharan Africa will be the second largest provider of biomass in theworld. This will benefit Africa as well as provide export potential. This is the way toprovide traction.

MR:

It is important for entrepreneurs. Whoever comes along, the majority of projectswon’t fly. If there are people with concerns they should look at the trans-nationalinstitutions for investment.

8.

Presentation: Satellite Facilities for Biosciences at University of Stellenbosch

Presented byDr.Emile van Zyl, Biomass Technologies Pty Ltd

Emile van Zyl presented the facilities available at their facilities at the University ofStellenbosch, and suggested these laboratories and the infrastructure could be usedas a satellite for bioenergy in southern Africa. The facilities are multi-disciplined, andare staffed by microbiologists,chemical engineers, and process engineers. Thelaboratories are well equipped with space for 12 students, good infrastructure, a bio-reactor laboratory and pre-treatment facilities for ethanol (the only one in SADC)and well equipped 20L to 200L fermentors. The facility cost about €8 million to build.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

35|46

One would need to negotiate with the university authorities with regards to using thefacilities for the proposed incubator. Human resource capital (€4 million) won’t beneeded as it is already part of the existing resources of the facility, and this could beused as early facilities for the incubator. The university is already working with Nepadto expand their regional network. Pilot projects don’t have to be housed at thesefacilities and can be rolled out throughout the region.

9.

Presentation: State of Bioenergy Development in SADC

and Incubator SupportOpportunities

Presented by Mr.

Odala Matupa, Interregional Policy Briefing

SADC is comprised of 15 member states. The power systems of 9 states areconnected on the mainland, and the electrification rate is about 30% for the region.Over 70% of the population of 250 million rely on biomass. The SADC energyinstruments are as follows:



The SADC Protocol on Energy (dated and in need of review);



SADC Regional Cooperation Policy and Strategy;



Regional Indicative Strategic Development Plan (RISDP), 2005;



Regional Energy Access Strategy and Action Plan (2010);



SADC Biofuel Decision Making Tool (2010);



Framework for Sustainable Biofuels (2010) (under development);



RE Strategy and Action Plan–

study on-going.

The role of SADC in biofuels development is:



Promoting policies that are compatible across political borders;



Enhancing technological transfer;



Engaging international partners for capacity building work and resourcemobilization;

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

36|46



Facilitate infrastructure development that enhances trade and regionalcooperation;



Providing a framework for development and implementation of nationalstrategies;



Facilitate capacity building;



Facilitate information and experience exchange;



Updating Regional Instruments (Protocol) to include emerging issues.

Programme for Bioenergy (ProBEC)

This is a pilot study that

was conducted on biofuels between 1998 and 2010, topromote energy efficient technologies and supporting policies. The biofuels projectsestablished are still continuing and carbon credit programmes are being negotiated.The key policy objectives for biofuels in SADC are:



Improve energy security;



Diversification of rural economy;



Creation of huge market for agricultural products;



Job creation;



Rural development;



Import substitution to save hard earned foreign exchange;



Opportunity for choice of environmentally friendly fuels;



Utilize soil not suitable for food crops or marginal land.

The region needs to focus on the following in order to move forward:



Further Develop and Contextualise the SADC Sustainability Framework forBiofuels;



Encourage Biofuel Research and Development and Sharing of ResearchResults;

Lackingcollaboration and coordination to leverage financial and technicalresources–

to match funding and project promoters;



Bioenergy data not readily available for planning purposes;



Policy inconsistencies and lack of stability;



Bioenergy development is perceived as an energy sector issue.

“Bioenergy remains the most important energy source in the Region and there isneed for Governments, Investors and other actors to work together to identifyinnovative and sustainable solutions.”

10.

Presentation: UNIDO Bioenergy

Initiatives in Southern Africa

Presented by Nokwazi Moyo

UNIDO is based in Pretoria under the Department of Trade and Industry (Dti) and hasregional offices in 10 other SADC member countries. They are involved in a numberof projects in the bioenergy sector in Africa.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

38|46

The Phambili Energy Biomass Conversion Project

This South African project deals with the poverty cycle. Rural areas export labour andbring back cash. This money is spent on food and other basic goods and the moneylands up back in thecity. There is a need to locate energy production in the ruralareas so local labour can be used, and which will keep parents in rural areas withtheir families. The production process centres round the conversion of logs/wood tobiofuels. It is a R40 million (€4 million) project that will develop smokeless fuel that canbe used indoors. The Phambili biomass power station plant can supply into the grid orlocal distribution network, or into industry.

11.

Presentation: SE4ALL and Bioenergy Investments

Presented byMr.Gregory Woodsworth, Energy Policy Advisor, UNDP

The UNDP is active in energy for development as part of the MillenniumDevelopment Goals. The SE4ALL was formally launched in 2011. The initiative iscomposed of 3 goals, namely energy access, energy efficiency, and renewables.The first objective of the initiative is the financial aspect of universal energy access.Africa alone will have half a billion people with no access to electricity by 2030. This isunacceptable and the UNDP is at the forefront of advocating universal access. TheMDG steering group has estimated the cost of providing 30% of the populationthrough grid extension is US$40 billion per year from now to 2030, the funding gap atpresent being US$26 billion per year. The cost efficiency of decentralised energysolutions is extremely persuasive.

From 1998 to 2008, the region experienced 70% growth in electricity generation oraverage annual growth rate of 6% for the region. Growth in the area of renewableenergy has been equally

strong, with total electricity generation from renewablesources grew by 72% from 1998 to 2008. This means that 66% of all new electricitygenerated in sub-Saharan Africa after 1998 has come from renewable sources. Thisgrowth in renewable has been almost

exclusively hydro-based, which relies on

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

39|46

climatic conditions. Most of this power is connected to the grid. However themajority of the African people are not, and instead rely on biofuels for energy.

Investment is still required for grid electricity. But we need to make additionalinvestment in decentralised systems that address more balanced national priorities. Arecent study has highlighted areas of interest, a number of policy instruments thatareavailable and to which the private sector will respond. The most significant arethe introduction of feed-in tariffs and the establishment of clear national targets forrenewable energy generation. The establishment of these targets are part of energystrategies. If properly conceived, developed and internalised by political and policysystems, they can be the basis for creating confidence in the private and financialsectors for making the appropriate investments. If governments create theframework, financiers may follow.

The core of the SE4AL initiative is the importance of setting targets. The global targetsfor 2030 need to be translated at the national level. African countries have done agap analysis which will be followed by action plans. The framework for SE4ALL isoutlined in the slide below:

12.

Discussion Panel: Agency Support

Panel

ME: Prof Elmissiry

OM: Odala Matupa

NM: Nokwazi Moyo

GW: Gregory Woodsworth

Questions

Q: Meghan Sapp: Should the targets be voluntary or mandatory?

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

40|46

GW: There is no obligation to reach targets for the use of biofuels. Governments bysigning onto the process are not obliged to reach these targets. If translated intoregional and national levels and working through RECs and they sign on for thestrategy, it becomes alegal instrument and obliges the member state to implementand follow and reach targets. As it gets translated down from global aspirations tonational level, it becomes a more mandatory legal obligation.

GM: An incubator is the technology for targets tobecome mandatory. Demands forprojects will create mandatory requirements.

Q: GM: How often do you meet as a group to discuss commonality of purpose?

GW: We meet under different guises. There is no forum for Regional EconomicCommunities (RECS) to meet. Nepad and the AU take the lead using RECs asregional sub-units for implementation and to support member states. This will beaddressed and provide better coordination in near future.

GM: Can you agree to a frame of words to put into our report in relation todevelopment to say that the incubator becomes the catalyst to facilitate thathappening.

ME: It may be possible.

GM: The projects are what will make the thing happen. Projects enabled will makefor action. Then we can focus demand, need, and cooperation. The incubator is notreliant on awaiting policy changes but may assist in directing and moving forwardthis forward. If you support this initiative please write to Prof ME and give support andthen we can create a proper frame of words.

GW: We can bring

RECs together to a cooperative forum as a NEPAD led initiative.This symposium should feed directly into REC Coordination group and become asub-chapter to a more formal agreement.

ME: This is the standard way for us to operate. We consult with all RECs to get theirsupport. We try to coordinate our work at a regional and national level to ensure thatcontinental projects are implemented and there is buy-in at regional and nationallevel.

GM: The commercial world wants to hear about these levels of co operation. This willallow them to feel more comfortable. Then it is not just a programme with an end buta facilitation that is sustainable in long term.

13.

Developingthe Fund: Roadmap for Establishment

Presented by Gavin Maxwell

Below is an illustration of what an energy park or Incubator Hub would look like,having tenants and supporting projects. Not all project developers would want to betenants and this hub will not be built for a while, but the Fund will have provision,partly from the public and matching funding process to put this centre in placebecause it needs a focus. The fund will drive projects into the hub and will be amodel for the world. This is what can happen when a need and a target cometogether in proper traction.

Incubator Project Model

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

41|46

The incubated project model encapsulates the entire bioenergy market. GreenEnergy Services Companies (Gesco) are a fundamental cluster around whichagriculture, industry and supply chains have to get together.

Every aspect of a natural resource needs to be examined in order for all theopportunities to be looked at. An incubator, backed by an incubator fund, is thebest way for projects to gain traction. The incubator is a clearing house for projects.Private investorswill know this is a sustainable process built around a framework anddevelopmental process. Investment will go directly into an incubator fund which willbe managed by a professional fund manager which will offer lower cost operatingfees. It will be a revolving fund that is taking equity in risk projects.

The areas to be supported cover all aspects in terms of due diligence that needs tobe put in place and supported at a capital, contract, supply chain and feedstocklevel. Africa’s natural assets will be

protected and revalued for energy for all throughthe development of enterprise.

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

42|46

Biomass is key to the economics of the bioenergy industry. Africa is the key tobiomass energy. By 2050, Africa could be the 3rd largest provider of biofuels globally.

ABioenergy

enterprise incubator fund diligence process will include standards,certification and guidelines so people have the confidence that the incubator hubwill deliver. All the policies will come under scrutiny to ensure they fit the purpose ofthe

incubator. The incubator could have 800 projects some tenanted some satellite.The incubator is the clearing house.

The objective if the incubator is to produce returns. For the fund so it can regenerateand support as many projects as possible and introduce large scale projects tomaturity for the financial community to get their returns. We need to reduce risk,

African

Bioenergy Investment Workshopin Southern Africa:

Summary of Proceedings

Page

43|46

make sure government policies are sound. We will set out roadmap for the fund overthe next 3 to 4 weeks.

14.

Closing by Prof Elmissiry

There isno doubt that this symposium has been target driven. We want to see thingshappening on the ground. Nepad is a result orientated organisation with a particularinterest to see things moving on the ground, so from the beginning of the symposiumwe have wanted to see programmable issues taken forward. We have identified fiveprojects and we will be moving these projects forward. A certain bank has alreadyagreed to have a closer look at these projects and advise on how to take theprojects forward. Gavin Maxwell, myself and Nepad will meet tomorrow to plan theway forward from here and we will keep you informed on what we plan to achieve.

Thanks to participants, organisers, and funders.

15.

Analysis of the Projects Competition

The projects presented at the Symposium were judged by the delegates on thefollowing criteria:



Management Team or Promoter overviewofthe project



A summary of the product or technology at the core of the project



A value proposition and unit economics

Furthermore delegates were asked to consider whether they would invest in theproject. The winner was: Dwight Rosslee of Biogas Power Technology.